A Tribute to the Thoughts of Another and his Friend"Everyone knows where we have been. Let's see where we are going!" -Another

Wednesday, June 3, 2009

Like an Arab Sheikh

A handout picture made available on October 26, 2008 from the media office of Sheikh Mohammad bin Rashed al-Maktoum shows Sheikh Mohammad bin Rashid al-Maktoum, Vice President, Prime Minister and Defense Minister of the United Arab Emirates and Ruler of Dubai, walking through an aisle of the second Emirates Airline A380 superjumbo at Dubai international airport. The rich Gulf Emirate received the second A380 on October 24, 2008. Emirates, which is owned by the government of Dubai, is the largest customer of the A380. It has 58 on order in a deal worth about 18.8 billion dollars based on list prices. (AFP/Getty Images)

He points out that many are speculating it is oil or energy or gold or high-beta stocks or even Treasuries.

He then states his belief that federal government is the next bubble to pop (state governments are already popping).

I will take his prediction one step further. I will take it global and say that the socialist promise of heaven on earth is the next bubble to pop.

In this prediction, I believe I have the agreement of Martin Armstrong, Anonymous, and even Another.

Anonymous asks and answers his own question:

What was the motivation behind freegold !?

Politics,...I mean the (colluding) debt driven political economy,...lives on one single dynamic : We promise the sheeple heaven on earth, and...let themselves pay for it, dearly !

"The promise" is already popping as well as the ability of the sheeple to pay.

The new political class, meanwhile, is acting like children in a candy store, oblivious to deafening "POP".

In just the past week we have watched President Obama jet around the country like an Arab sheikh backed by oil wealth. Obama flies his 747 across the country to party with Harry Reid in Las Vegas. The cost of the trip is estimated at over half a million dollars. Then on to New York City to catch a Broadway show.

Obama has managed to spend more "money" in his first 100 days than all other presidents COMBINED.

(Wall Street Journal | Opinion) Mr. Obama's $3.6 trillion budget blueprint, by his own admission, redefines the role of government in our economy and society. The budget more than doubles the national debt held by the public, adding more to the debt than all previous presidents -- from George Washington to George W. Bush -- combined.

But who... or what is going to pay for this IN-YOUR-FACE profligacy? The rich? More taxes? China? Future generations?

No, no, no and no!

The answer is EVERYONE will pay. At least everyone who has any dollars, dollar-denominated financial assets, or anyone relying on fixed payments from a pension or even Social Security. They will ALL pay dearly for Obama to globetrot and party down like an Arab sheikh. And they will pay for both parties', virtually everyone in Washington DC's, misunderstanding of economics and money.

Neither side gets it.

We don't determine the value of the dollar.

The dollar right now has two problems.

First it must worry about usage demand. This is the day to day operational demand of the global economy. This demand is fading.

Second, it must worry about financial product demand. This is the demand from savings, storage of value, wealth preservation.

The financial product demand is severely impaired. Dollar-based assets of all kinds can no longer be trusted to retain value. Even Treasuries are extremely risky. When interest rates rise, liquidation value of Treasuries falls, trapping the buyer in the investment, forcing him to ride it out and hope that inflation doesn't eat away his value. And in an environment of rising interest rates, the purchase of bonds is an immediate loser, like buying a new car and driving it off the lot.

So from a supply and demand perspective, just when the supply of fresh dollars and fresh dollar-assets-for-sale (Treasuries) is peaking, demand is plummeting.

June 3 (Bloomberg) -- Bill Gross, founder of Pacific Investment Management Co., advised holders of U.S. dollars to diversify before central banks and sovereign wealth funds ultimately do the same amid concern about surging deficits.

The only solution to this deadly conundrum is a massive devaluation of the dollar. Does it really matter WHO devalues the dollar? No, of course not. But as I wrote in The Judgement of Value:

The central banks, the printers of money, the governments, the treasuries, the powers-that-be have no say in the value of a dollar. That judgement of value is reserved for the recipient of those freshly printed dollars.

Even those of us that hold dollars, that hoard them in our mattresses or bank accounts, have no say in the value of those dollars. The people that we offer those dollars to have the power to judge their worth, and to decide how much time, labor or real goods they are willing to part with for a piece of paper.

So when Timmy Geithner tells the Chinese that we still believe in a strong dollar, he is only blowing hot, stinky air into the face of the judge himself.

It is the PRODUCERS of the world that have the power to judge the value of our dollars. The fate of the dollar is in their hands. Our political leaders believe they can control the value of the dollar through various means. They also believe they can control the global stock and bond markets. This disturbing fact is becoming more and more evident as each day passes.

But what is clear to anyone with half a brain is that today's status quo is not sustainable in ANY way. Something's gotta give. The bubble WILL POP! It has already begun.

"So," you ask, "if we are all going to pay dearly for Obama's jetsetting ways and Congress' profligate spending, what will we receive in return?"

The answer is nothing but pain. These final death throes of the socialists' promise of heaven on earth are only the final TWISTING of a knife that was thrust long ago. You will pay dearly in the near future for everything you received in the last thirty-odd years. The bill has now come due. There will be no present-day reward for the complete surrender of your treasure.

There is, however, one small loophole in this tax of doom. There is a very small window of opportunity and only limited seating for the show. "Freegold" is the name of the show, and it is not playing on Broadway. So I doubt the Obamas caught it.

Good up to the point of FreeGold. I think true value is energy; it can be anything. Gold is inert... it won't keep you alive and it's value is purely spiritual.

In the short run following a collapse, it will be consumables that are seen as wealth. In the mid-term, it will be energy and the resources to rebuild... resources that are largely non-renewable. If the system shorts out before the long-term, gold won't return to it's pinnacle. Energy will have and maintain a trump position on gold.

I think you are overlooking the difference between "usage of value" and "storage of value". I think you are correct about consumables and energy being true value in the usage category. But they are not so convenient for the storage of value (unless you happen to be an Arab Sheikh with oceans of oil under your land).

Those who are fortunate enough to have some value to store for future use will need "some lasting thing that men might keep without spoiling, and that by mutual consent men would take in exchange for the truly useful, but perishable supports of life."

This quote is from John Locke, 1690. I think you will find his Treatise on property an interesting read.

Chris, How will Oil trade without Gold or without some form of "money"? The Energy holders will want something in return for their Oil. What can be given to them if we have no energy to produce it?

The holders of Gold will call the shots..they hold the wealth. The Energy holders want to sell their oil to obtain the wealth. Energy is purchased so people or businesses can seek "money" Without Gold there is no point in working for Oil

Hi FOFOA!It's about some weeks that I started reading your blog and the comments. I can't tell you how fascinating I find it. By coincidance I've found almost the same blogs you seem to read and they all are my only source of information in Merkel'sland. It is not imaginable what a scarcity of real information we have here! As a matter of fact I am so afraid about the future, that it has become quite a therapy for me to read your posts, otherwiwe I would be inclined to believe that I'm going crazy due to the discrepancy between my observations and my surroundings. Keep writing and receive my sincerely thanks!

First what does that stand for. Second what do you think of things like goldmoney? Fascinating post. Gold was bear raided this am but it is a terrible problem for the govt. It seems the only think china and the us have left is the element of surprise. The us acting to devalue befor the Chinese dump and the Chinese seeking to keep the dollar steady and commodities down as they subtly shift into the cheap hard goods. That said as the situation becomes Moe and more transparney ie when equity traders are worrying about a treasury auction, the problem has gone Britney sprears mainstream. One would think the us is would try and engineer a plaza agreement to pre empt the inevitable with some concession like perhaps California. I jest. But for sure the us could sate its largest ceditor with something of value technology bank or something for said years in exchange for lienency. Once the intl side is settled then you move to massicly devalue or go to.a basket and sure acres here get screwed and lifestyles cut but that is coming regardless. Use ygr devalue to revamp bendits for entitlements. Seems like a sequential plan for the very socialism you dismiss. Us it fraught with risk. Sure lots of countries looking for an opening to pounce on friends and foes. But the time would be now as the mitset is stil strong and threats retarded no mater how many dong 3s in Korea or nukes in china. Leaning forward is always better than reacting. The problem that china must recognize is that the end game is becoming too appasrent and might move the us to impose its dollar destruction scenario without consequences. Ygr geopolitical risks are growing higher every day.financial Def con 2.

For a medium of trade to work, both sides must value it and trust in its realizable worth enough to complete the trade. In our world of excess, gold has considerable value. Would it hold the same value in a world where the excess is not present? We have a world of 6.3 billion citizens and we can't feed half of it without cheap oil. If we sustain or regain our excess, I can see gold resuming it's position. But if the masses are fighting for survival, I doubt they'll desire golden trinkets.

It presently takes 900lbs of rice to buy one ounce of gold. In a world of short supply, do you think gold will rise or fall in price, relative to life necessities like rice?

Societies have found a means of trade in the past... cocoa beans, seashells, jewels, gold, and so forth. These mediums give way to others, and in the absence of faith, barter takes over. Faith runs the system, in more ways than we acknowledge. We assume gold will reign because of it's history. Gold only works because of faith. This faith can be challenged.

What currency oil will trade in... perhaps none. I read so often about a collapse sending us back to our earliest fiat currencies, like precious metals. It could regress one stage further, to barter.

I should mention, that I LOVE this blog... I'm not trying to win with these comments, but I think they are worthy of consideration.

~~~ isn't it interesting what number you read when you flip fine gold upside down? ~~~

SNIP:"At some point this madness takes on a life of its own. Treasury bond interest rates suddenly jump to 10%, which will be viewed as unacceptable by the Obama Administration and so Bernanke, by making huge Treasury purchases, gets the rate down to 8.5%, but the new money used to push rates down pushes price inflation even higher and, thus, puts upside pressure on Treasury bonds, which results in rates climbing to 15%. Of course, this will be viewed as unacceptable and Bernanke will have to add twice as much money as last time to get rates down to 12.5%. At this point the Chinese will be in total panic, and use the Bernanke buying support to unload the remains of the U.S. bonds they hold, which will mean even more money printing by Bernanke to take the Chinese out of their position. This will mean even more inflation and the Treasury bond interest rate climbing to 25%. And the vicious circle continues. That's how you can end up getting to Zimbabwe type inflation, 500 basis points at a time...

A few who are quick and understand how to take advantage of hyperinflation will make huge fortunes. For the remainder, it will be a stunning collapse in their standard of living.

For years, investment newsletters have been speculating about such a hyperinflation scenario. We are now beyond the speculation stage. The end game has begun..."

Europe is now in the middle of a perfect storm - a confluence of three separate, but interconnected economic crises which threaten far greater devastation than Britain or America have suffered from the credit crunch: the collapse of German industry and employment, the impending bankruptcy of Central European homeowners and businesses; and the threat of government debt defaults from loss of monetary control by the Irish Republic, Greece and Portugal, for instance on the eurozone periphery.

Most of the wealth (for example oil) on this globe is hyper concentrated in particular places and power-hands. Frregold is the only wealth consolidating value standard that can be universally exchanged on a level playing field.

It sounds like "utopia". We simply will have to move much closer to this when we realize that the present global system increasingly becomes dysfunctional.

I don't want to advocate gold-addiction just for the subjective affection of this soft yellow metal. But rather because it is the only pragmatic solution that is left and has been used periodically during the past 6.000 years (cfr. The solidus or Byzant ! )

"Despite schadenfreude about the domestic problems in the US, or about the loss of respectability for American global leadership, it is a fact that no single state, nor any combination of states,can replace the lynchpin role that the US continues to play in the world."

[Let's try a word replacement...]

Despite schadenfreude about the domestic problems in the US, or about the loss of respectability for THE US DOLLAR, it is a fact that no single CURRENCY, nor any combination of CURRENCIES,can replace the lynchpin role that the US DOLLAR continues to play in the world.

[Sounds like we get Freegold when the dollar falls from grace!]

"Despite the decline... the fact remains that the US and the EU together, account for more than one half of the global GDP and that is an ENORMOUS source of weight... "

"The hallmark of Chinese leadership is foresight and patience. Caution and patience. The Chinese approach to international affairs: Observe calmly. Secure our postion! HIDE our capacities, and bide our time. Be good at maintaining a LOW PROFILE. And NEVER claim leadership."

In part 4, he makes the point that Russia has been accumulating $system assets for many years, and now they realize that those assets could simply vanish. His assessment is that this will make Russia want to SUPPORT the $system.

Given recent comments from Russia, Brzezinski may be wrong in his assessment. Russia doesn't want to be caught in the same $TRAP as China.

It is pretty clear after listening to this November speech, that Obama is working off the Brzezinski playbook.

I agree, it is an IMPOSSIBLE plan !

The point of his statement, "Its easier to kill a million people...than it is to control them", was that "the people" are awake now, and they cannot be controlled when they are awake.

Brzezinski's plan requires massive control not only over all people, but over entire regions of the world. It requires the massive manipulation of the Thoughts of Russia, China, the Middle East.... It requires CONTROL of the Israel-Palestinian conflict.... it requires ABSOLUTE COOPERATION between Germany, France, the UK and the US.... it requires ABSOLUTE FAITH in that which has been proven UNWORTHY.... it requires Obama "educating the stupid Americans"...

Simply, it is too complex.

Simply, it requires TOO MANY VARIABLES too perform PERFECTLY.

Simply, it violates lex parsimoniae over and over and over again and again. Freegold does NOT!

KISS.. Keep It Simple Stupid - "KISS states that design simplicity should be a key goal and that unnecessary complexity should be avoided."

Albert Einstein: "everything should be made as simple as possible, but no simpler."

In the current slump, with OPEC member cutting production and oil stock increasing nonetheless I see absolutely no reason for anyone to believe that operational supply and demand are close. I would rather argue that we currently have an incredible oversupply from an operational perspective. However, oil prices are rising.

In generally it is funny to see how many cushioning there is. For instance, as people flee from the dollar into oil, oil prices rise and be means of the operational demand that is still left increase/maintain at least some dollar demand as one still needs dollars to buy oil.

As with gold perhaps something else is creating some volatility: the bond market.

This is another cushion. As the bond market collapses, interest will go up, and some people will believe they should not be in gold as it does not pay interest. I guess that's the current uncertainty in gold.

Here are the top 15 countries during that same time period (2009). UAE comes in 26th out of 135 countries to give you perspective. But Arabia interests me. As does China, which comes in 17th, with 283 visits.

A major criteria for the most significant move in gold, called a Golden Pillar, is the demise of the long bond. This is why you must understand that hyperinflation is a product of a currency event that occurs in the midst of the worst of business conditions. The event is locked in and loaded by quantitative easing.

The first window in time for this event is the early 4th quarter of 2009. When it starts it runs quite quickly. Within 12 to 18 month from the initial rumblings hyperinflation consumes the currency.

The first rumblings are here and now below .8200 on the USDX. Below .7200 and you will be looking back at $1224 as gold runs towards $1650.

This is definitely on its way.

The commercial interests are still not ready for this. For the commercial interest to either miss this move or be buried by it is a reach. It could happen, but is unlikely to happen without a fight. We will be watching closely to call it for you.

In truth the best possible action would be for gold to decline from some level into the third week of this month and then launch forward. However, to those utilizing gold to insure their standard of living and life it makes no difference at all. The reason for that is gold is going to $1650 and then on to Alf’s numbers.

The goons are now making fools out of themselves in gold equities. The gold share hit yesterday was GRANDSTANDING in an attempt to shake out stock for a cover.It is apparent to me that the shorts are getting very itchy to cover. That is what dirty tricks are all and only about.

I really can’t understand why anyone wants to trade here or try to market time here. It is so obvious to the trained eye that the train is pulling out of the station for biggest move so far in gold. Stop trying to time everything to the minute. You want a full position - do it and do it now.

Regardless of the chatter of the talking heads, this overvalued dollar is going to seek .72, .62 and .52. This winter is going to be extremely difficult for the US dollar. I am sure that before December the dollar will be pummeled

NEW YORK (MarketWatch) -- Treasury prices dropped Friday, with the yield on 2-year notes making its biggest surge since September, after the government reported the economy shed fewer jobs in May than economists expected, feeding hopes that the worst of the recession has past.

POG down $20 !?

The FED wants you to believe they can perfectly manage the hyper inflationarry $-expansion.

Most WSJ articles on Bloomberg cannot be read to the end except you were a subscriber. That one about the "bubble" was for the whole. Maybe I'm crazy, but I would not wonder if it was so much of coincidence as little after Gold plunged by 20 bucks. Just in order to demonstrate the high volatility of Gold...

By locking in a fixed benefit 30 years away he is BETTING he knows the future! Exactly his argument against gold.

A physical gold metal advocate is betting he DOESN'T know the future. Therefore he wants an asset that will REACT to whatever comes along. A bond does not react. It just sits there serving time, like Madoff, hoping it doesn't die before it gets out.

One of Europe’s founding fathers – Jean Monnet – once said: “When an idea meets the needs of the time, it ceases to belong to its creators and becomes more powerful than those responsible for it”. And he added: “There is no such thing as premature ideas, there are only ripe times that one should wait for”.

Extracted form Trichet's speeche back in January.

http://www.ecb.int/press/key/date/2009/html/sp090113.en.html

Btw, it seems you become a little famous in the bourgondic paradise ;-))

"Over the course of 2007 / 2008 [THE PAST TWO YEARS!!] – more than 5,000 metric tonnes of “Gold Compounds” have been exported from the United States of America representing more than 62% of reported sovereign U.S. gold reserves or about 24 times annual U.S. mine production."!!

Snip from the above: Instead of promising the imminent return of good times, why isn’t Mr. Obama talking more about the importance of living within our means and not spending money we don’t have on things we don’t need? We used to be a frugal nation. The president should be talking about kicking our addictions to easy credit, to quick fixes and to a culture of more is better (and Congress’s new credit-card legislation, while perhaps eliminating some of the worst aspects of that industry, certainly didn’t send the right message about personal finance).

And even more so: Why has Mr. Obama surrounded himself largely with economic advisers who are theoreticians and academics — distinguished though they may be — but not those who have sat on a trading desk, made a market, managed a portfolio or set a spread?

Why isn’t the Obama administration working night and day to give the public a vastly increased amount of detailed information about what happens in financial markets? Ever since traders started disappearing from the floor of the New York Stock Exchange in the last decade of the 20th century, there has been less and less transparency about the price and volume of trades. The New York Stock Exchange really exists in name only, as computers execute a very large percentage of all trades, far away from any exchange.

Well... that would be a huge step towards a solution indeed, but very unlikely to happen.

We are in one of those “generational revolutions” that Jefferson said were as important as anything else to the proper functioning of our democracy. We can no longer pretend that our collective behavior as a nation for the past 25 years has been worthy of us as a people. Many of us hoped that Barack Obama’s election would redress the dire decline in our collective ethic. We are 139 days into his presidency, and while there is still plenty of hope that Mr. Obama will fulfill his mandate, his record on searching out the causes of the financial crisis has not been reassuring. He must do what is necessary to restore the American people’s — and the world’s — faith in American capitalism and in our nation. Answering our questions may help us get back on track. But time is wasting.

"On the (blunt) premise that we call economists scientists, this is quite remarkable."

This is actually a huge problem within the scientific community that I have been aware of for some time. It is amplified by the fact that the scientific community is a "closed society", and it self-protects. It acts quickly to discredit any outside threat or question.

In my opinion it is the worst case of intellectual inbreeding and group-think you can imagine.

Economics and medicine both do not understand how to treat things as closed systems. They can only look at isolated, specific symptoms and try to fight them. Usually by shooting a bazooka. Any unintended damage they discard as collateral. In reality such a word has no meaning. A bomb does not differentiate between collateral or not it just destroys stuff. So do many economists.

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